Health Insurance When Selling Your Business: COBRA, ACA, and Medicare Planning

Business owners spend years optimizing their group health plan and then forget to plan for what happens to their own coverage on closing day. Selling your business is a qualifying event — you lose your employer-sponsored coverage, and a clock starts. Whether you're 55 or 64, the decision you make in the first 60 days determines how much you'll pay for coverage and whether you incur permanent Medicare late-enrollment penalties. Here's the 2026 framework.

What happens to your health coverage when you sell

Most business owners cover themselves — and often a spouse and dependents — through their company's group health plan. When you sell the business, one of three things happens to that plan:

1. The buyer continues the plan and keeps you (and employees) on it — but this typically applies only if you're staying on as an employee post-closing, which most exit-planning sellers are not.
2. The plan terminates at close because you're no longer the employer sponsor. This is the most common outcome in asset sales, management buyouts, and sales where the owner is leaving the business entirely.
3. The plan is assumed by the buyer under stock sale terms, but your participation ends because your employment ends. Same practical effect for you: loss of coverage.

In all three scenarios, your loss of group coverage is a COBRA qualifying event. Federal law requires the plan administrator to notify you of your COBRA election rights within 44 days of the qualifying event. You have 60 days from the notice (or from the date coverage ends, whichever is later) to elect COBRA.¹

COBRA: the 18-month bridge

COBRA continuation coverage lets you stay on your former employer's group plan for up to 18 months after a qualifying event. The catch: you pay the full premium — both the employee and employer share — plus a 2% administrative fee. That cost surprises most owners who only ever saw the employee-side deduction from their paycheck.²

A typical employer-sponsored health plan for a family of two (both spouses in their late 50s or early 60s) runs $22,000–$28,000 per year in total premium. As an employee-owner, you probably paid $3,000–$6,000 of that. Under COBRA, you pay 102% of the full premium — roughly $1,870–$2,380 per month for a couple on a mid-tier plan in 2026. On a high-deductible plan the premium may be lower; on a platinum or executive plan it can run $3,000+.

Estimates based on 2026 group plan averages for two 58–62-year-old enrollees. Actual cost depends on your specific plan, insurer, and state.

COBRA coverage is identical to your former plan — same network, same deductibles, same prescription drug formulary. That consistency has real value if you're mid-treatment, seeing specific specialists, or managing a chronic condition that would require network disruption under a new marketplace plan.

When COBRA makes sense: You're within 2–3 years of Medicare eligibility and want to preserve continuity of care. Or you close in Q4 and are managing the ACA MAGI question through year-end (see below). Or you have a pending medical situation that would create coverage risk during a plan transition.

When COBRA may not make sense: You're 58 and won't reach Medicare for 7 more years. Paying $1,900/month for 18 months burns $34,200 in premiums, and then you're back to the same marketplace decision anyway. In this case, COBRA's value is the 18-month planning window — use it, but have the next-step plan ready before the 18 months expire.

ACA marketplace in 2026: the cliff is back

The enhanced premium tax credits that ran from 2021 through 2025 — which eliminated the 400% FPL subsidy cliff and provided subsidies to anyone whose premium exceeded 8.5% of income — expired at the end of 2025 and were not extended by the One Big Beautiful Bill Act (OBBBA). Starting with 2026 marketplace coverage, the rules reverted to their pre-2021 form.³

The practical consequence for most business sellers:

• Above 400% of FPL: no subsidy. For a household of two, 400% of FPL for 2026 coverage is $42,300. A business owner in the year of sale — or even in subsequent years if they have investment income, installment sale proceeds, or IRA distributions — will almost certainly exceed this threshold and owe full unsubsidized premiums.⁴
• Repayment caps are gone. If you enroll expecting a subsidy and your income exceeds 400% FPL at year-end, you must repay the entire advance credit. There are no partial caps as there were before. An unexpected income spike (accelerated installment payment, stock option exercise, Roth conversion) can create a large tax bill at filing.

Unsubsidized ACA costs in 2026

For a couple where both spouses are in their early 60s, a silver plan on the ACA marketplace in 2026 typically runs $2,200–$3,200/month in premiums without subsidy, depending on state and plan design. This is often comparable to COBRA, with the tradeoff that marketplace plans may not include your current physicians or hospital network. A bronze plan (lower premium, higher deductible) may run $1,500–$1,900/month for the same couple.

One structural advantage the ACA marketplace has over COBRA: once your COBRA window closes at 18 months, losing COBRA is a qualifying life event that triggers a 60-day Special Enrollment Period on the marketplace. You aren't locked out — but be aware that the SEP clock starts when COBRA coverage ends, not when you first decided to go that route.

MAGI strategies to reduce ACA costs in post-sale years

Business sellers who complete a sale in year one and then live off investment income and installment proceeds in subsequent years have meaningful control over their MAGI:

• Municipal bonds: Tax-exempt interest from munis doesn't count toward ACA MAGI. Shifting post-sale portfolio allocation toward munis can reduce MAGI-reportable income without reducing investment returns.
• Installment sale pacing: If you structured the sale with an installment note, the annual gain recognition is spread over the note term. Lower recognition in any given year reduces MAGI. Coordinate this with your advisor — you can elect out of installment treatment, but can't undo it retroactively. Installment sale strategy guide.
• Capital gain management: In low-income years, qualified dividends and long-term capital gains may be taxed at 0% and also count less toward the MAGI threshold. A fee-only advisor models the combined effect of investment income, Roth conversions, and ACA premiums as a holistic system.
• Roth conversion sequencing: A large Roth conversion in a post-sale year increases MAGI and can push you over the 400% FPL cliff. Roth conversions are worth doing — but the size, timing, and order relative to ACA subsidy eligibility matters. If you're $10,000 under the cliff, a $15,000 Roth conversion costs you not just the tax on the conversion but the entire subsidy you'd otherwise receive.

Medicare: the 8-month SEP trap that catches business sellers

If you are 65 or older at the time of the sale, or will turn 65 within the next few years, Medicare enrollment mechanics become the most important coverage decision you'll make. The rules are specific and the penalties for getting them wrong are permanent.

How the Special Enrollment Period works

If you delayed enrolling in Medicare past age 65 because you had employer-sponsored health coverage (through your own business), you qualify for a Special Enrollment Period when that employer coverage ends. The SEP gives you 8 months to enroll in Medicare Part A and Part B without a late-enrollment penalty.⁵

The 8-month clock starts when either the employer coverage ends or the employment ends — whichever comes first. For a business owner who sells and loses their group plan at closing, the clock starts at the sale date.

The late-enrollment penalty math

Medicare Part B's base premium in 2026 is $202.90/month.⁶ A 10% late-enrollment penalty adds approximately $20.29/month — for life. A two-year delay (two 12-month periods) adds $40.58/month permanently. Over a 25-year retirement, a two-year delay costs approximately $12,200 in excess premiums in today's dollars. For a couple, that doubles. This is not a hypothetical risk — it's a mechanical penalty triggered by a paperwork deadline.

Planning by age at closing

HSA strategy: maximize before Medicare enrollment

If your group plan before the sale is a High-Deductible Health Plan (HDHP), you have been eligible to contribute to a Health Savings Account. When you sell, your COBRA coverage may maintain your HDHP status — if so, you remain eligible to contribute to your HSA for every month you are enrolled in the HDHP and have not yet enrolled in Medicare.⁷

2026 HSA contribution limits:⁷

• Self-only HDHP coverage: $4,400
• Family coverage: $8,750
• Age 55+ catch-up: $1,000 additional

HSA funds invested pre-tax, grow tax-free, and are withdrawn tax-free for qualified medical expenses — including Medicare Part B, Part D, and Medicare Advantage premiums in retirement (but not Medigap premiums). Building your HSA balance in the years before Medicare enrollment gives you a tax-free bucket to pay for healthcare costs throughout retirement.

Stop contributing the month you enroll in Medicare Part A or Part B. Once enrolled in either, you can no longer contribute to an HSA, even if you maintain HDHP coverage. The penalty for excess contributions is income tax plus a 6% excise tax per year the excess remains. If you retroactively enrolled in Medicare Part A (which can go back 6 months), any HSA contributions in those retroactive months are excess contributions. This is a common mistake for business sellers who apply for Medicare late and accept the retroactive enrollment — watch for it.

IRMAA: your 2026 sale year will hit Medicare in 2028

Medicare Part B and Part D premiums use a two-year lookback on your MAGI. A large business sale in 2026 means the 2026 MAGI is assessed in 2028 to set that year's Medicare premiums. Depending on the size of your sale, you could face the maximum IRMAA surcharge in 2028 and 2029, adding up to $3,468/year in Part B surcharges per person above the base premium — $6,936 per person per year for a couple at the highest income tier.

The IRMAA surcharge is not permanent — it resets each year based on the relevant lookback MAGI. Once your post-sale income normalizes in 2027 and beyond, the 2029 and 2030 assessments will reflect those lower levels. For detailed IRMAA tier calculations and the SSA-44 appeal option, see our IRMAA after a business sale guide.

If your spouse has employer coverage

If your spouse is still employed and their employer provides group health coverage that covers you both, that changes the entire picture:

• You may not need COBRA at all — you can join your spouse's plan as a qualifying event (loss of your own coverage qualifies you for a Special Enrollment Period on their employer plan).
• Spouse's employer coverage is "employer coverage through current employment" for Medicare SEP purposes. As long as you're covered under it, the Medicare SEP clock is not running, regardless of how old you are.
• When the spouse eventually stops working (or their employer coverage ends), that triggers both spouses' Medicare SEP simultaneously.

This is the cleanest scenario — but if the spouse's coverage is significantly worse than your former plan, or is ending within a few years anyway, it's worth modeling the full trajectory rather than defaulting to the lowest-cost path today.

The advisor coordination point

Health insurance cost in retirement is a major financial planning variable that most exit-planning advisors underweight relative to taxes. A 60-year-old couple selling a business and retiring early faces potentially 5–10 years of unsubsidized coverage at $24,000–$40,000/year before Medicare, followed by IRMAA surcharges in the first two Medicare years from sale-year income, followed by long-term healthcare costs that typically escalate in the mid-70s.

These decisions — COBRA vs. marketplace, MAGI management for subsidy eligibility, Roth conversion sizing vs. ACA premium cliffs, HSA timing, Medicare SEP enrollment — interact with each other and with your sale structure, investment plan, and estate plan in ways that require modeling the full picture. A fee-only exit-planning specialist does this coordination work; an insurance agent selling you a plan does not.

Sources

1. U.S. Department of Labor — COBRA Continuation Health Coverage FAQs for Workers. Qualifying events, election periods (60 days), coverage duration (18 months for employee job-loss events), cost (102% of full group premium), and M&A COBRA obligations.
2. The Horton Group — COBRA Continuation Coverage: Mergers and Acquisitions. COBRA obligations in M&A transactions, selling-group liability, M&A qualified beneficiary definition.
3. Get IRS Help — OBBBA, ACA Subsidies, and Premium Tax Credit Clawback. OBBBA did not extend enhanced PTCs; 400% FPL cliff and full repayment requirement restored for 2026 coverage.
4. ObamaCareFacts — 2025 Federal Poverty Guidelines for 2026 Coverage. 400% FPL thresholds by household size for 2026 ACA premium tax credit eligibility; couple (2-person household) threshold: $42,300.
5. Medicare.gov — When Does Medicare Coverage Start. Special Enrollment Period mechanics: 8-month window after employer coverage or employment ends (whichever first); COBRA is not employer coverage; late-enrollment penalties for Part B.
6. Medicare.gov — Avoid Late Enrollment Penalties. Part B base premium 2026: $202.90/month; 10% late-enrollment penalty per 12-month period without creditable coverage after age 65.
7. IRS Notice 2025-67 — 2026 Benefit and Retirement Plan Limits. HSA contribution limits 2026: $4,400 self-only / $8,750 family / $1,000 age-55+ catch-up (IRC § 223). Medicare Part A or Part B enrollment ends HSA contribution eligibility.

ACA premium tax credit rules and thresholds reflect 2026 coverage year; enhanced PTCs (ARP/IRA) expired December 31, 2025 and were not extended by OBBBA. Medicare Part B premium verified as $202.90 base for 2026. HSA limits from IRS Notice 2025-67. COBRA mechanics from DOL regulations under ERISA. Values verified June 2026. All situations involve individual facts — confirm enrollment deadlines and plan specifics with a qualified benefits advisor.